Beruflich Dokumente
Kultur Dokumente
Materiality
Planning
Auditors approach
Determine
planning
materiality
Determine
tolerable
misstatement
Post FW
Fieldwork!
Evaluate
audit findings
When judging whether misstatements are Consider known vs. likely misstatements
Consider qualitative attributes of misstatements
material:
Problem 3-31
Scenario 1
Murphy & Johnson is a manufacturer of small motors for
lawnmowers, tractors, and snowmobiles. The components of its
financial statements are (1) net income before taxes = $21
million, (2) total assets = $550 million, and (3) total revenues =
$775 million.
Planning materiality?
Tolerable misstatement?
During the course of the audit, Murphy & Johnsons CPA firm
detected two misstatements that aggregated to an
overstatement of net income of $1.25 million.
b) Evaluate the audit findings. Justify your decisions.
Tolerable Misstatement
Up to 50% of Planning Materiality
During the course of the audit, Murphy & Johnsons CPA firm
detected two misstatements that aggregated to an
overstatement of net income of $1.25 million.
b) Evaluate the audit findings. Justify your decisions.
Compare to planning materiality of either
$630,000 (At 3% NIBT) or
$1.05 million (At 5% NIBT)
The two detected misstatements exceed planning
materiality.
Auditor should propose an adjustment to the financial
statements so that the remaining misstatement would be
equal to or less than planning materiality.
Scenario 2
Delta Investments provides a group of mutual funds for
investors. The components of its financial statements are
(1) net income before taxes = $40 million, (2) total assets
= $4.3 billion, and (3) total revenues = $900 million.
Planning materiality?
Tolerable misstatement?
Tolerable Misstatement
Up to 50% of Planning Materiality
Scenario 3
Swell Computers manufactures desktop and laptop
computers. The components of the financial assets are:
(1) net income = $500,000, (2) total assets = $2.2
billion, and (3) total revenues = $7 billion.
Planning materiality?
Tolerable misstatement?
21.Tolerable misstatement is
a)Always the same for errors and fraud.
b)Materiality for the balance sheet as a
whole.
c)Materiality for the income statement as a
whole.
d)Materiality allocated to a specific
account.